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| Not a child's play |
| Arnav Pandya / New Delhi Oct 25, 2009, 00:40 IST |
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There is an increasing need to teach children sound money management. This is done by exposing them to money and giving them pocket money for use. Giving them the freedom to manage several of their expenses using this money is used for the purpose of inculcating sound money management behaviour from a young age. All these areas need adequate attention, as this will have a lasting impact.
There should be an early start because properly understanding of finance and money management is vital and will be useful at different points of time in life, when there are additional responsibilities. Slowly introducing children to monetary activities from the time they are in school will help in a proper build-up and lay a strong base for the future. In the course of all this, there is a need to ensure specific concepts are taught to children because these are essential. Here are a few of factors that need attention.
Spending and saving
The first thing that happens with children and money is that they develop an experience of monetary behaviour. The moment they are able to understand the concept of money and other factors, they can start the dealing. For example, giving Rs 250 for purchasing certain items for dinner will highlight how there has to be a choice among various priority items. This is just the starting point.
When it comes to spending, there have to be the right decisions about where this is spent. Should the money be spent on chocolates or buying clothes?. Similarly, should a particular video game be bought at all is another type of question that needs answers. The main point is that spending has to be for productive and useful purposes. At the same time, there has to be some amount saved for the future.
This concept will be useful for the entire life of the person, as savings is one habit that always comes handy at some point or the other. Proper savings of a certain percentage of the amount for future use will be helpful in understanding that immediate pleasure sacrificed for future use can bring more joy. For example, Rs 100 saved for five years and earning just five per cent will lead to an accumulation of Rs 6,800, where the earning is equal to more than half a year's contribution.
Small amounts are important
It is said that small steps are the way to larger success in life and that is true in the financial field, too. The money management process looks very attractive when large sums of money are mentioned but in reality, the real learning is available when small sums are managed. Small sums when taken together can build up to a large amount. So, Rs 100 saved for two years might not seem much, as it amounts to Rs 2,400 but well used, it can grow to several lakhs over a long period of time. It is always beneficial to start small, so that there can be experiences from these amounts that are carried forward for future behaviour.
In dealing with children and their money management, everything is taking place in small lots. For example, there might be Rs 200-300 given as pocket money and even if Rs 75-100 is saved, it becomes a significant amount. For an adult this might not seem large but when the small amounts are valued, it becomes possible for the individual to progress to proper management of the large amounts.
Understand official terms
Children are one category of people where the regulation of behaviour can have a large impact. This is the learning phase of life and children are always very inquisitive. If things are explained to them in a proper manner, then they will be able to understand the logic behind any action. There is also a questioning attitude that helps in clarifying issues. This is the reason why various financial instruments and processes have to be explained to them and this will be useful for them for their entire lives. For example, how to write a cheque by using the account payee instructions or how to know the cheque number or filling in a bank deposit slip or proper use of an ATM card are all processes that need to be taught at this age.
The writer is a certified financial planner
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